Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

In April 2014, the United States Court of Appeals for the District of Columbia held the SEC’s conflict minerals rule and statute embodied in Dodd-Frank violate the First Amendment to the extent the statute and rule require regulated entities to report to the SEC and to state on their website that any of their products have “not been found to be ‘DRC conflict free.” The holding involved an interpretation of Zauderer v. Office of Disciplinary Counsel. In Zauderer, the U.S. Supreme Court stated that rational basis review applies to certain disclosures of “purely factual and uncontroversial information.” However, the D.C. Circuit had previously stated Zauderer is “limited to cases in which disclosure requirements are ‘reasonably related to the State’s interest in preventing deception of consumers.” According to the D.C. Circuit, since the conflict minerals rule did not relate to the deception of consumers, the SEC’s conflicts minerals rule, and possibly the statute, was unconstitutional.

Now the D.C. Circuit has issued its decision in American Meat Institute v. U.S. Dept. of Agriculture. The en banc opinion in that case held that Zauderer in fact does reach beyond problems of deception, to encompass the disclosure mandates at issue in that case. So while important distinctions exist between the American Meat case and the conflicts minerals case, it looks like the SEC has a shot at prevailing. Left unsaid is what happens to the SEC’s request that the conflicts minerals case be reheard en banc before the DC Circuit.


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